1.

Articles 1484 to 1491

2. Cases:

a. Southern Motors Inc. vs. Moscoso, 2
SCRA 168

2 SCRA 168, G.R. No. L-14475
May 30, 1961
FACTS:
Plaintiff Southern Motors, Inc. sold to defendant
Angel Moscoso one Chevrolet truck on installment
basis, for P6,445.00. Upon making a down payment,
the defendant executed a promissory note for the
sum of P4,915.00, representing the unpaid balance
of the purchase price to secure the payment of
which, a chattel mortgage was constituted on the
truck in favor of the plaintiff. Of said account, the
defendant had paid a total of P550.00, of which
P110.00 was applied to the interest and P400.00 to
the principal, thus leaving an unpaid balance of
P4,475.00. The defendant failed to pay 3
installments on the balance of the purchase price.
Plaintiff filed a complaint against the defendant, to
recover the unpaid balance of the promissory note.
Upon plaintiffs petition, a writ of attachment was
issued by the lower court on the properties of the
defendant. Pursuant thereto, the said Chevrolet
truck, and a house and lot belonging to defendant,
were attached by the Sheriff and said truck was
brought to the plaintiffs compound for safe keeping.
After attachment and before the trial of the case on
the merits, acting upon the plaintiffs motion for the
immediate sale of the mortgaged truck, the
Provincial Sheriff of Iloilo sold the truck at public
auction in which plaintiff itself was the only bidder
for P1,OOO.OO. The trial court condemned the
defendant to pay the plaintiff the amount of
P4,475.00 with interest at the rate of 12% per
annum from August 16, 1957, until fully paid, plus
10% thereof as attorneys fees and costs. Hence, this
appeal by the defendant.
ISSUE:
Whether or not the attachment caused to be levied
on the truck and its immediate sale at public auction,
was tantamount to the foreclosure of the chattel
mortgage on said truck.
HELD:
No.Article 1484 of the Civil Code provides that in a
contract of sale of personal property the price of
which is payable in installments, the vendor may
exercise any of the following remedies: (I) Exact
fulfillment of the obligation, should the vendee fail
to pay; (2) Cancel the sale, should the vendees
failure to pay cover two or more installments; and
(3) Foreclose the chattel mortgage on the thing sold,
if one has been constituted, should the vendees
failure to pay cover two or more installments. In this
case, he shall have no further action against the
purchaser to recover any unpaid balance of the
price. Any agreement to the contrary shall be void.
The plaintiff had chosen the first remedy. The
complaint is an ordinary civil action for recovery of
the remaining unpaid balance due on the promissory
note. The plaintiff had not adopted the procedure or
methods outlined by Sec. 14 of the Chattel Mortgage
Law but those prescribed for ordinary civil actions,
under the Rules of Court. Had the plaintiff elected
the foreclosure, it would not have instituted this
case in court; it would not have caused the chattel to
be attached under Rule 59, and had it sold at public
auction, in the manner prescribed by Rule 39. That
the plaintiff did not intend to foreclose the mortgage
truck, is further evinced by the fact that it had also
attached the house and lot of the appellant at San
Jose, Antique.
We perceive nothing unlawful or irregular in
plaintiffs act of attaching the mortgaged truck itself.
Since the plaintiff has chosen to exact the fulfillment
of the appellants obligation, it may enforce
execution of the judgment that may be favorably
rendered hereon, on all personal and real properties
of the latter not exempt from execution sufficient to
satisfy such judgment. It should be noted that a
house and lot at San Jose, Antique were also
attached. No one can successfully contest that the
attachment was merely an incident to an ordinary
civil action. The mortgage creditor may recover
judgment on the mortgage debt and cause an
execution on the mortgaged property and may cause
an attachment to be issued and levied on such
property, upon beginning his civil action.


b. Pascual vs. Universal Motors Corp., 61
SCRA 121

FACTS:

Plaintiff-appellee spouses Lorenzo Pascual
and Leonila Torres (spouses Pasqual)
executed the real estate mortgage subject
matter of this complaint on December 14,
1960 to secure the payment of the
indebtedness of PDP Transit, Inc. (PDP
Trans.) for the purchase of 5 units of
Mercedes Benz trucks, with a total purchase
price or principal obligation of P152,506.50
which was to bear interest at 1% per month
starting that day, but the plaintiffs'
guarantee is not to exceed P50,000.00
which is the value of the mortgage. The PDP
Trans., as the spouses Pasqual's principal,
paid to defendant-appellant Universal
Motors Corporation (Universal Motors) the
sum of P92,964.91 on April 5, 1961 for two
of the five Mercedes Benz trucks and on
May 22, 1961 for the remaining three, thus
leaving a balance of P68,641.69 including
interest due on February 8, 1965.

On March 19, 1965, Universal Motors filed
this complaint with the CFI of Manila
against the PDP Trans. to collect the
balance due under the Chattel Mortgages
and to repossess all the units sold to PDP
Trans. as the spouse Pascuals principal,
including the 5 units guaranteed under the
subject Real (Estate) Mortgage. During the
hearinbg, Universal Motors admitted that it
was able to repossess all the units sold to
the latter, including the 5 units guaranteed
by the subject real estate mortgage, and to
foreclose all the chattel mortgages
constituted thereon, resulting in the sale of
the trucks at public auction. As the real
estate mortgagors, the spouses Pascual
filed an action with the CFI of Quezon City
for the cancellation of the mortgage they
constituted on 2 parcels of land in favor of
the Universal Motors to guarantee the
obligation of PDP Trans. to the amount of
P50,000. The said CFI rendered judgment in
favor of the spouses Pascual and ordered
the cancellation of the mortgage.

ISSUE:

Was Article 1484 of the New Civil Code
applicable in the case at bar?

COURT RULING:

The Supreme Court affirmed the lower
courts decision. Appellant Universal
Motors argues that Article 1484 is not
applicable to the case at bar because there
is no evidence on record that the purchase
by PDP Trans. of the 5 trucks was payable in
installments and that the PDP Trans. had
failed to pay two or more installments.
Universal Motors also contends that what
Article 1484 prohibits is for the vendor to
recover from the purchaser the unpaid
balance of the price after he has foreclosed
the chattel mortgage on the thing sold, but
not a recourse against the security put up
by a third party.

The Supreme Court concluded to the
contrary, saying that the first issue was
whether or not the sale was one on
installments. The lower court found that it
was, and that there was failure to pay two
or more installments, a finding which is not
subject to review by the Supreme Court.

The next contention is that what article
1484 withholds from the vendor is the
right to recover any deficiency from the
purchaser after the foreclosure of the
chattel mortgage, and not a recourse to
the additional security put up by a third
party to guarantee the purchaser's
performance of his obligation. But the
Supreme Court to sustain this argument of
the appellant would be to indirectly subvert
and public policy overturn the protection
given by Article 1484.

c. Filinvest Credit Corp. vs. CA, 178 SCRA
188

FACTS:
Herein private respondents spouses Jose Sy Bang
and Iluminada Tan were engaged in the sale of
gravel produced from crushed rocks and used for
construction purposes. They intended to buy rock
crusher from Rizal Consolidated Corporation which
carried a cash price tag of P550,000.00. They applied
for financial assistance from herein petitioner
Filinvest Credit Corporation, who agreed to extend
financial aid on the certain conditions.
A contract of lease of machinery (with option to
purchase) was entered into by the parties whereby
the private respondents agreed to lease from the
petitioner the rock crusher for two years starting
from July 5, 1981, payable as follows: P10,000.00
first 3 months, P23,000.00 next 6 months,
P24,800.00 next 15 months. It was likewise
stipulated that at the end of the two-year period,
the machine would be owned by the private
respondents. Thus the private respondent issued in
favor of the petitioner a check for P150,550.00, as
initial rental (or guaranty deposit), and 24 postdated
checks corresponding to the 24 monthly rentals. In
addition, to guarantee their compliance with the
lease contract, the private respondent executed a
real estate mortgage over two parcels of land in
favor of the petitioner. The rock crusher was
delivered to the spouses.
However, 3 months later, the souses stopped
payment when petitioner had not acted on the
complaints of the spouses about the machine. As a
consequence, petitioner extrajudicially foreclosed
the real estate mortgage. The spouses filed a
complaint before the RTC. The RTC rendered a
decision in favor of private respondent. The
petitioner elevated the case to CA which affirmed
the decision in toto. Hence, this petition.
ISSUES:
1. Whether or not the nature of the contract is one
of a contract of sale.\
2. Whether or not the remedies of the seller
provided for in Article 1484 are cumulative.
HELD:
1. Yes. The intent of the parties to the subject
contract is for the so-called rentals to be the
installment payments. Upon the completion of the
payments, then the rock crusher, subject matter of
the contract, would become the property of the
private respondents. This form of agreement has
been criticized as a lease only in name.
Sellers desirous of making conditional sales of their
goods, but who do not wish openly to make a
bargain in that form, for one reason or another, have
frequently restored to the device of making
contracts in the form of leases either with options to
the buyer to purchase for a small consideration at
the end of term, provided the so-called rent has
been duly paid, or with stipulations that if the rent
throughout the term is paid, title shall thereupon
vest in the lessee. It is obvious that such transactions
are leases only in name. The so-called rent must
necessarily be regarded as payment of the price in
installments since the due payment of the agreed
amount results, by the terms of bargain, in the
transfer of title to the lessee.
2. No, it is alternative. The seller of movable in
installments, in case the buyer fails to pay 2 or more
installments, may elect to pursue either of the
following remedies: (1) exact fulfillment by the
purchaser of the obligation; (2) cancel the sale; or (3)
foreclose the mortgage on the purchased property if
one was constituted thereon. It is now settled that
the said remedies are alternative and not
cumulative, and therefore, the exercise of one bars
the exercise of the others. Indubitably, the device
contract of lease with option to buy is at times
resorted to as a means to circumvent Article 1484,
particularly paragraph (3) thereof. Through the set-
up, the vendor, by retaining ownership over the
property in the guise of being the lessor, retains,
likewise the right to repossess the same, without
going through the process of foreclosure, in the
event the vendee-lessee defaults in the payment of
the installments. There arises therefore no need to
constitute a chattel mortgage over the movable sold.
More important, the vendor, after repossessing the
property and, in effect, canceling the contract of
sale, gets to keep all the installments-cum-rentals
already paid.

d. Layug vs. IAC, 167 SCRA 627

e. Ridad vs. Filipinas Investments, 120 SCRA
246

The vendor of personal property sold on the
installment basis is precluded, after foreclosing the
chattel mortgage on the thing sold from having a
recourse against the additional security put up by a
third party to guarantee the purchasers
performance of his obligation on the theory that to
sustain the same would overlook the fact that if the
guarantor should be compelled to pay the balance
of the purchase price, said guarantor will in turn be
entitled to recover what he has paid from the
debtor-vendee, and ultimately it will be the latter
who will be made to bear the payment of the of the
balance of the price, despite the earlier foreclosure
of the chattel mortgage given by him, thereby
indirectly subverting the protection given the latter.
Facts: The spouses Ridad purchased from the
Supreme Sales Development Corporation two (2)
brand new Ford Consul Sedans complete with
accessories. To secure payment thereof, plaintiffs
executed on the same date a promissory note
covering the purchase price and a deed of chattel
mortgage not only on the two vehicles purchased
but also on another car (Chevrolet) and their
franchise or certificate of public convenience
granted by the defunct Public Service Commission
for the operation of a taxi fleet with Filipinas
Investment.
Due to the failure of the plaintiffs to pay their
monthly installments as per promissory note,
Filipinas Investment foreclosed on the chattel
mortgage on the Ford Consul Sedans. The
foreclosure sale had a deficiency. Consequently, the
corporation foreclosed the mortgage constituted on
the (Chevrolet) and their franchise or certificate of
public convenience.
Issue: Whether Filipinas Investment is precluded
from foreclosing the second mortgage to recover the
deficiency on the first mortgage
Held: No. The vendor of personal property sold on
the installment basis is precluded, after foreclosing
the chattel mortgage on the thing sold from having a
recourse against the additional security put up by a
third party to guarantee the purchasers
performance of his obligation on the theory that to
sustain the same would overlook the fact that if the
guarantor should be compelled to pay the balance of
the purchase price, said guarantor will in turn be
entitled to recover what he has paid from the
debtor-vendee, and ultimately it will be the latter
who will be made to bear the payment of the of the
balance of the price, despite the earlier foreclosure
of the chattel mortgage given by him, thereby
indirectly subverting the protection given the latter.
If the vendor under such circumstance is prohibited
from having a recourse against the additional
security for reasons therein stated, there is no
ground why such vendor should not likewise be
precluded from further extrajudicially foreclosing the
additional security put up by the vendees
themselves, as in the instant case, it being
tantamount to a further action 5 that would violate
Article 1484 of the Civil Code, for then is actually no
between an additional security put up by the vendee
himself and such security put up by a third party
insofar as how the burden would ultimately fall on
the vendee himself is concerned.

f. SPS DE LA CRUZ VS. CA, G.R. No. 94828,
September 18, 1992
g. LEOVILLO C. AGUSTIN vs. CA, G.R. No.
107846, April 18, 1997

atty. carlo busmente
h. Fiestan vs. CA, 185 SCRA 751

FACTS:
Petitioners spouses Dionisio Fiestan and Juanita
Arconada were the owners of a parcel of land
wituated in Ilocos Sur which they mortgaged to the
DBP as security for their P22,400.00 loan. For failure
of petitioners to pay their mortgage indebtedness,
the lot was acquired by the DBP as the highest
bidder at a public auction sale after it was
extrajudicially foreclosed by the DBP. A certificate of
sale was subsequently issued by the Provincial
Sheriff on the same day and the same was registered
in the Office of the Register of Deeds. Earlier,
petitioners executed a Deed of Sale in favor of DBP
which was likewise registered. Upon failure of
petitioners to redeem the property within the one-
year period, petitioners TCT lot was cancelled by the
Register of Deeds and in lieu thereof, it was issued to
the DBP upon presentation of a duly executed
affidavit of consolidation of ownership. The DBP sold
the lot to Francisco and the same was registered in
the Office of the Register of Deeds. Subsequently,
the DBPs title over the lot was cancelled and in lieu
thereof, the TCT was issued to Francisco Peria.
Francisco Peria secured a tax declaration for said lot
and accordingly paid the taxes due thereon. He
thereafter mortgaged to the PNB as security for his
loan of P15,000.00 as required by the bank to
increase his original loan since petitioners were still
in possession of the lot, the Provincial Sheriff
ordered them to vacate the premises. On the other
hand, petitioners filed on August 23, 1982 a
complaint for annulment of sale, mortgage and
cancellation of transfer certificates of title against
the DBP, PNB, Francisco Peria and the Register of
Deeds before the RTC.
ISSUE:
Whether or not that the extrajudicial foreclosure
sale is null and void by virtue of lack of a valid levy.
HELD:
No. The formalities of a levy, as an essential requisite
of a valid execution sale under Section 15 of Rule 39
and a valid attachment lien under Rule 57 of the
Rules of Court, are not basic requirements before an
extrajudicially foreclosed property be sold at public
auction. The case at bar, as the facts disclose,
involves an extrajudicial foreclosure sale.
In extrajudicial foreclosure of mortgage, the
property sought to be foreclosed need not be
identified or set apart by the sheriff from the whole
mass of property of the mortgagor for the purpose
of satisfying the mortgage indebtedness. For, the
essence of a contract of mortgage indebtedness is
that a property has been identified or set apart from
the mass of the property of the debtor-mortgagor as
security for the payment or fulfillment of the
obligation to answer the amount of indebtedness, in
case of default of payment. By virtue of the special
power inserted or attached to the mortgage
contract, the mortgagor has authorized the
mortgagee-creditor or any other person authorized
to act for him to sell said property in accordance
with the formalities required under Act No. 3135, as
amended.
The Court finds that the formalities prescribed under
Sections 2, 3 and 4 of Act No. 3135, as amended,
were substantially complied with in the instant case.